If the economy suffers from a recessionary gap due to adverse demand shocks, then:
A) AD is stronger than the AD at the potential output.
B) AD and AS intersect at the potential output.
C) AS falls short of the potential output.
D) AD is weaker than the AD at the potential output.

Question

Quizplus · Accepted Answer

In a recessionary gap caused by adverse demand shocks, aggregate demand (AD) is weaker than it would be at the economy's potential output. This means the economy is not operating at its full capacity, leading to unemployment and underutilized resources.

If the Economy Suffers from a Recessionary Gap Due to Adverse